7 Smart Strategies To Pay Off Debt With Low Income.

English poet Thomas Tusser once said, “Who goes borrowing, goes sorrowing”, to show that debt only begets misery and distress. And while we all need money to get ourselves out of debt, we can still do it even with a small paycheck, and to prove that, I’ll share with you just how to pay off debt with low income:

You can pay off debt with a low income by following these seven steps: set up an emergency fund, list all your debt, create a Budget, start eliminating debts using the Debt Snowball method, improve your income, lower your expenses, and avoid any debt-payment traps.

Once you can follow those seven steps, which I’ll explain in detail, you can pay off your debt and avoid it entirely. It’s doable, and I’ll show you how to do it.

Of course, getting out of debt takes a lot of financial discipline and hard work from your end.   

Remember, ‘Debt is a slavery of the free’ according to Latin writer Publilius Syrus. And so if you want to be financially free, which you should, you’ve got to get out of debt.

So, how about we get started with the steps?

In a rush? Below is a summary of the seven steps to getting out of debt on a small paycheck:

7 Ways to Pay Off Debt with Low Income

1. Set up a starter emergency fund worth $1,000
2. List down all debt, starting with the smallest
3. Create a Budget outlining all your expenses and income
4. Start paying down your debt using the ‘Debt Snowball’ method
5. Look for ways to generate more income
6. Cut down on unnecessary expenses
7. Avoid any debt-payment traps

How to Pay Off Debt with Low Income

Generally, it takes these steps to pay off debt on a small paycheck:

Step 1 – Establish a Starter Emergency Fund

Before you can begin paying down your debt, you must create a safety net to handle financial emergencies.

The starter fund that builds protects you from having to borrow once you start paying down your debt.

This is usually Dave Ramsey’s first step under the 7 Baby Steps to Financial Freedom. You aim to set up an emergency fund that equals at least $1,000, and you should build it as soon as possible.

Step 2 – List Down All Your Debt

Now that your starter emergency fund is ready to handle financial emergencies when they arise, you must first determine what you are dealing with. That means listing down every debt you owe, no matter how small.

Consider listing them from the smallest to the biggest, as that will help with the debt elimination process under step 4.

Step 3 – Create a Budget

Personal finance expert Dave Ramsey usually says this about budgeting: “A Budget is telling your money where to go instead of wondering where it went.”

You can’t pay off your debt without planning how to spend your money. So, start by creating a Budget that accounts not only for your income and expenses but also your debt (which you’ve to pay albeit tactically).

If you need help with budgeting, check out the Cent Warrior Monthly Budget Tracker, which can help you keep track of your spending and Budget your money irrespective of the paycheck size.

Step 4 – Start Eliminating Your Debts Using the Snowball Method

With the starter emergency fund and Budget on standby and all debts listed, it’s time to start paying them. We usually advocate for the Snowball Method, which allows you to celebrate every small victory as you build enough momentum to tackle the next enormous debt until you pay the last one.

Here’s how to go about it:

• List down all your debt from the tiniest to the biggest (apart from the mortgage or home loan), the interest rate notwithstanding
• Make minimum payments on every other debt apart from the smallest
• Attack the smallest debt with a vengeance (pay as much as you can until you eventually clear it)
• Then attack the next smallest debt with a vengeance as you make minimum payments on others
• Continue doing that until you attack the last debt

Also Read: Bare Bones Budget Full Guide

Step 5 – Improve Your Income

Since you are on a small paycheck, it may take longer to get out of debt if you only rely on your current salary for the payments. Consider finding another income source to supplement what you have.

Here are some ideas on how to pay off debt with no money:

• Work overtime – If your job allows it, ask for overtime to make more money. You can then divert the extra earnings into the debt repayment.
• Freelance online – There are numerous opportunities online that you can leverage to make money as a freelancer. That includes online writing, proofreading, paid research, transcription, online tutoring, music lessons, photography, and virtual assistance, to name a few. Visit Upwork to see the kind of freelance services you can offer.
• Start a business – You can start a business on the side offline or online to make extra cash. You can start an Etsy store, blog, or YouTube channel online. You can even start a Dropshipping business.
• Switch jobs – If an opportunity arises for a better-paying job, don’t skip it. Grab it and use the extra earnings to pay down your debt. That means you’ve to be on the lookout for better-paying jobs.
• Sell unused/used items – Why keep things you no longer use when you could sell them and use the money to pay down your debt? Platforms like Craigslist and Facebook Marketplace allow you to sell baby gear, tools, sports equipment, home appliances, electronics, furniture, and other items and get some quick bucks.
• Airbnb space sharing – If you’ve some extra space at home, perhaps an extra room, an apartment, or a vacation home, rent it out on Airbnb. You can then use the rent to pay down your debt.

Step 6 – Lower Your Expenses

Yes, you may make more money on the side, but if you cannot control your spending, you may still struggle to get out of debt. Sometimes, you don’t need to get another income source; you need to cut down on some of your expenses.

Here are some ideas to lower your expenses and save enough to help you pay down your debt:

· Sell off your car

Imagine what you can do with the money you save after selling your car. You don’t have to keep it when trying to get out of debt, as it’ll be expensive to keep. You can instead use public transport or cycle to work.

But if you find it hard to commute without a car, consider trading it in for a much cheaper and low-cost option. Doing so will save you money on insurance, servicing, and fueling, and you can use the money to pay down your existing debt.  

· Drop the credit card

Here’s how to pay off credit card debt with low income:

You don’t have to continue using the credit card when struggling to get out of debt. Stop using it, which will stop you from accumulating more credit card debt.

· Start couponing

Coupons are there for a reason: to help you save. You can thus collect them from online stores, physical outlets, and magazines and use them when checking out. Learn to look for items you need on sale and buy them at discount prices.

· Seek cheaper entertainment

Entertainment can be expensive if you aren’t too careful. For example, some pay TV options cost over $80 a month, which is costly. Instead of such options, choose cheaper alternatives like Netflix, Hulu, Apple TV, and Disney+, which cost under $10 monthly.

You can also use free options like YouTube, Pluto TV, Amazon’s Freevee, and Peacock TV. Moreover, you can opt for the library, movie rental, board games, nature walks, and hikes as they are low-cost and sometimes free.

· Don’t eat out

Dine-outs can be expensive, especially if you do it more frequently at fine restaurants. So, instead of succumbing to the pressure of eating out, prepare your meals at home and pack some for work or school.

· Plan your meals

Consider planning your meals. This will help you stay within your Budget. You can do it using free meal-planning applications like Big Oven, Lala Lunchbox, Cozi, Paprika App, Eat This Much, and Whisk.

Ensure you plan your meals using cheaper but healthy ingredients and use whatever you save to pay your debt.

· Shop (for groceries) with a list

Since you already have a Budget, consider shopping for grocery supplies with a list. It saves you from unplanned purchases, especially when you have kids. To do it seamlessly, you can use a grocery list planning tool like Angelist or Mealime.

· Try shopping online

A few advantages come with shopping online compared to shopping in person. For instance, you only order what you need, saving you from impromptu and unplanned spending. You can also take advantage of free shipping deals and save on transport.

· Pause investing

You don’t have to start investing since you are trying to get out of debt. Pause it for now and concentrate the extra savings on paying down your debt.

You start investing after clearing all your debt (apart from the mortgage) and fully funding your emergency fund. Your fully-funded emergency fund should be worth 3-6 months of your household’s living expenses.

· Let the Joneses be

Don’t try comparing yourself to others. Don’t envy their fancy lifestyles if you can’t afford it. Sometimes things aren’t what they seem, and the people you are trying to keep up with or impress may be struggling financially themselves but only making appearances.

· Involve the family

Getting out of debt is a collective effort, especially for families. You can’t do it alone. It’ll help to involve the other family members, especially the kids. Let them know that you are planning to get out of debt and are on a Budget so that they can help you attain your financial goal.

Step 7 – Avoid Any Debt Payment Traps

You can’t ‘rob Peter to pay Paul’. To get out of debt, you must avoid all pitfalls that could sink you into debt again. Just don’t acquire more debt, and that means avoiding the following:

• Credit card debt
• Personal loans from friends, family members, and financial institutions
• Mobile loans – especially mobile apps
• HELOC – where you borrow against your home equity
• Debt consolidation – where you bundle up all your debts into one big payment, which usually results in a higher interest and lengthier payoff term

Concluding Thought on How To Pay Off Debt With Low Income:

Above are the seven steps to try and pay off your debt despite having a small paycheck. If you need some help, we, as Cent Warrior, can help. Consider signing up for our Debt Crash Accelerator Program, where we share eight quick steps to get you out of debt.

Alternatively, you can grab a copy of Winning the Game of Debt from our online shop to learn how to quickly get out of debt and build a financially free life and lasting wealth.